Tesla’s board has proposed a $US1 trillion ($1.52 trillion) compensation plan for CEO Elon Musk in what would be the largest corporate pay package in history.
The move underscores the hold Mr Musk has over the car maker as it attempts to transform into an AI and robotics powerhouse.
Here’s what we know about the package.
What are the conditions?
Elon Musk will need to increase Tesla’s value eightfold. (ABC News: Daniel Mercer)
The proposed plan would grant Mr Musk up to 12 per cent of Tesla’s stock, worth about $US1.03 trillion if the company hits its target market value of $US8.6 trillion.
The plan requires boosting Tesla’s valuation nearly eightfold, or about $US7.5 trillion, over the next decade.
To get his first package of shares equivalent to 1 per cent of the company, Mr Musk would have to convince investors in the stock market that Tesla is worth $US2 trillion in total, double what they value it today, and also hit several other milestones.
To receive all the shares offered and make him the world’s first trillion-dollar man would require that market value to then rise to $US8.6 trillion, double that of the world’s most valuable company now, chipmaker Nvidia.
Among other goals, sales of all Tesla vehicles would eventually also have to reach 20 million, nearly triple its entire sales since it was founded more than two decades ago.
To increase Tesla’s value the company will need to sell 20 million vehicles. (AP Photo: Julio Cortez)
Mr Musk would also have to vastly expand Tesla’s robot and robotaxi businesses by selling a million of the bots and a million of the driverless cabs, the latter a business that has only begun to roll out its taxi service and is behind rivals, such as Waymo.
Mr Musk would also need to remain with Tesla for at least seven and a half years to cash out on any stock, and 10 years to earn the full amount.
If fully earned, the award would materially increase Mr Musk’s voting power from his roughly 13 per cent stake, intensifying debate over governance and succession.
Tesla emphasised that Mr Musk would receive no salary or cash bonus, with all compensation linked to performance.
Why is he being offered so much money?
The package is designed to keep Mr Musk from leaving and is squarely focused on transforming Tesla into an artificial-intelligence and robotics powerhouse, the board said in a securities filing.
It said Mr Musk is the only person on the planet who can unlock Tesla’s full potential.
Mr Musk has been criticised as being distracted from Tesla.
Elon Musk’s willingness to challenge Donald Trump has raised concerns at Tesla.
His foray into party politics and his willingness to challenge President Donald Trump had heightened concerns among Tesla investors and analysts about potential distractions and had previously fuelled talk about looking for a new chief.
In July, Mr Musk announced plans to launch a third political party, the “America Party”, following a public clash with Trump over a tax cut and government spending bill.
Tesla’s board has urged shareholders to vote against a proposal calling for a political neutrality policy, which would have expanded board oversight of Mr Musk’s political activities.
Does it need shareholder approval?
Yes, and Mr Musk is likely to get it at the company’s annual meeting in November.
That is because it was crafted with an eye on keeping Mr Musk in place, addressing concerns about the company’s technical outlook and giving big company owners just enough reason to back the massive amount, investors and executive pay analysts said.
The pay plan is by far the largest ever for any CEO. And while it is likely to face legal challenges, compensation experts see it winning shareholder approval.
“Time and time again, Tesla’s shareholders have approved these grants over the years,” Equilar research director Courtney Yu said.
“While it may seem outlandish now, shareholders will get tremendous value out of it if Elon Musk is successful.”
What are supporters and detractors of the plan saying?
None of Tesla’s three largest outside investors, Vanguard Group, BlackRock or State Street, immediately said how they would vote.
Among them, Vanguard and BlackRock supported Mr Musk’s $56 billion pay package last year, disclosures show, while State Street funds voted against it.
Tesla and top funds can still expect pressure over the pay, however, with several union figures and public-sector treasurers voicing concern.
Union figures and public-sector treasurers have voiced concerns about the proposed payment. (AP: Jose Luis Magana)
“We urge shareholders to reject Musk’s money grab, take away the Tesla board’s rubber stamp, and restore basic corporate governance standards,” said Randi Weingarten, president of the American Federation of Teachers, in a statement.
Kristin Hull, founder and chief investment officer of Tesla investor Nia Impact Capital, called the package irresponsible.
“This is investor money that could go into R&D or acquisitions, places that would really benefit Tesla in the long term,” she said, adding that she is considering a challenge with other shareholders.
Dan Coatsworth, investment analyst at AJ Bell, called Mr Musk a visionary but said the pay plan was excessive and could set a bad precedent in corporate governance.
He questioned whether Mr Musk was worth that much.
“He also presides over a company that has lost its edge, is being overtaken by rivals, and whose brand has been tarnished by Musk’s actions outside of Tesla,” he said.
Where does this leave the legal battle over his 2018 pay package?
Last year, Tesla reincorporated in Texas after a judge in its former corporate home, Delaware, ruled a $US56 billion compensation for the CEO was “unfathomable” and unfair to shareholders.
Mr Musk urged companies to ditch Delaware and his board worked on a new pay package.
US judge rejects Musk’s $86 billion Tesla pay package — again
Last year, the company’s shareholders voted to “ratify” Mr Musk’s 2018 pay package in an attempt to essentially undo the court ruling and restore Mr Musk’s pay package.
Mr Musk will be able to vote about 411 million shares at this year’s shareholder meeting, nearly outweighing the 529 million shares that voted against ratification.
In the end, the ratification vote did not matter because the Delaware judge ruled it did not override her prior decision. That ruling and her ruling striking Mr Musk’s $US56 billion compensation are on appeal.
In 2018, the company barred Mr Musk from voting his shares to make it harder for investors to sue under Delaware law.
Now Tesla does not need to do that because it has much better protection from legal challenges thanks to laws in Texas.
ABC/Wires
